 "Nickel price may decline further on lower demand")
Nickel prices are likely to extend weakness in the rest of this year’s period due to record high production and carryover stocks estimated for the second consecutive year in 2013.
The price of nickel, the metal used as the most important hardening agent in stainless steel, has declined 18% since this year’s high price of $18770 a tonne, the metal hit on February 4. Since then, nickel has been one of the worst performing metal in base metals complex for third year in a row.
This is a good news for Indian stainless steel manufacturers who were considering shifting to other competing metal or less use of nickel when its price shot up to $51000 a tonne a couple of years ago.
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India is a net importer of nickel to meet its demand from stainless steel industry. At an estimated 22 million tonnes of stainless steel production and 6% of nickel use it, total import of this metal may be estimated at around 1 million tonne. The repercussion of the nickel price fall should be on every household in India as stainless steel utensil has replaced the costlier brass and copper allied utensils as a cheaper substitute. Also, lower investment on infrastructure has dented overall stainless steel demand resulting into a negative impact on nickel prices.
The metal opened on a higher note in January 2013 tracking firmness across base metals complex amid easing worries over US fiscal crisis. Later hopes of pickup in demand from top consumer China coupled with signs of improving global economic health lent support to the prices.
The rally however was short lived and prices resumed its downward momentum. Declining factory output from China to US deteriorated growth outlook which weakened the metal’s fundamentals that was supported by deepening recession in the euro zone debt crisis.
Prerana Desai, Vice President (Research) of Kotak Commodity Services Ltd forecast nickel price to remain traded between $12500-15600 a tonne with the downward bias. Nickel was quoted at $14040 a tonne on the London Metal Exchange (LME) in early Wednesday. On the domestic front, the commodity may broadly trade in a range of Rs 740-895 a kg.
The downside may however be capped amid expectation of robust demand from US and restocking by China. Also lending support is recent jump in cancelled warrants ratio at LME warehouses. Further improved risk appetite amid hopes that US Fed may not taper its bond buying programme anytime soon may also lend support. Fed Chairman Ben Bernanke on July 10 said that accommodative monetary policy in US will be needed for foreseeable future.
“We however believe that optimism will be short lived as Fed stance may change with improvement in US labour market,” said a senior official with stainless steel manufacturer.
A Kotak Commodity Services report said that on fundamental front nickel prices have been under pressure due to rising supply coupled with weak demand. The market has been in supply surplus since 2011. According to the International Nickel Study Group (INSG), global production of nickel may rise by 5.6% to 1.86 million tonnes in 2013 as against 9.1% increse in 2012 to 1.76 million tonnes while global demand for the metal is expected to rise by 7.2% to 1.77 million tonnes after 4.4% gain in 2012. As a result nickel market is expected to remain in supply surplus of 90,000 tonnes in 2013 after 110,000 tonnes of surplus in 2012.
The metal’s demand is expected to grow at a faster rate in 2013 amid hopes of robust demand from major nickel consuming sector viz. stainless steel. About 65% of nickel is used as an alloy in stainless steel production to make it resistant to corrosion, according to the INSG.
Global stainless steel production rose by 3% in 2012 to 35.1 million tonnes and is expected to climb 4.5% this year to 36.7 million tonnes. In China, the top consumer of nickel, stainless steel production rose around 13% to 16 million tonnes and is expected to grow around 10% this year to reach 17.6 million tonnes.
According to World Bureau Metal Statistics, China’s nickel consumption rose by more than 19% in 2012 to 837,340 tonnes and by 38.5% to 291,523 tonnes in first four months of 2013 as against same time period in 2012. The rise in demand can be mainly attributed to rise in restocking, include buying by China's State Reserves Bureau (SRB) and metal being used in financing deals.